US biodiesel industry regains momentum

According to the National Biodiesel Board (NBB) trade
organization, the US biodiesel industry produced more than one
billion gallons (B gal) of biodiesel fuel in 2011, surpassing
the 800 million gallon target established for the year under
the US Environmental Protection
Agencys Renewal Fuel Standard (RFS). While this is less
than 1% of the total US diesel production, it is a significant
volume for a new industry.

Experts agree that this record-breaking 2011 production was
largely due to the EPA having reinstated the earlier $1/gal tax
credit for biodiesel in December 2010. This followed a
disastrous 2010, in which the lack of the tax credit resulted
in dramatic cuts in production, investment and employment in
the biodiesel industryyet, the industry persevered in
2012.

However, 2013 should bode well for the biodiesel industry.
In early August 2012, the Senate Finance Committee approved a
package extending the biodiesel production tax credit through
2013. In addition, on Sept. 14, 2012, the EPA further increased
the 2013 biodiesel volume requirements for biomass-based diesel
under the RFS to 1.28 B gal. These actions would appear to
position biodiesel for continued growth, at least through the
end of 2013. Encouraged by a favorable environment at both the federal and
state levels, several companies have announced plans to expand
biodiesel production capacities and/or distribution
infrastructure.

Biodiesel in the US

The EPA is responsible for developing and implementing
regulations to ensure that domestically consumed transportation
fuels contain a minimum volume of renewable fuel. The RFS
created under the US Energy Policy Act of 2005 established the
first mandates for renewable fuels. Significantly, the initial
RFS applied only to gasoline, not diesel.

However, the Energy Independence and Security Act (EISA) of
2007 expanded the RFS program (now referred to as
RFS2) to include diesel. EISA also increased the
required volume of renewable fuel to be blended into
transportation fuel (both gasoline and diesel) from 9 B gal in
2008, to 36 B gal by 2022. Pure biodiesel, or B100,
is typically consumed as a blend with conventional or
ultra-low-sulfur diesel (ULSD).

Reacting to widespread criticism that the earlier, ethanol-focused program did not
result in a net positive effect on greenhouse gas (GHG) emissions, EISA also required the
EPA to apply lifecycle GHG performance threshold standards to
ensure that each renewable fuel category results in fewer net
GHG emissions than the petroleum-based
product it replaces.

While well-intentioned, the lifecycle GHG threshold
standards create additional hurdles for renewable producers,
who now have to perform and pay for extensive studies to
determine and document net GHG emissions for their new products and
processes, it also stifles innovation to a certain degree.
Nevertheless, funded in part by US Department of Energy grants,
companies continue to develop and commercialize new biodiesel
processes.

Expanding the biodiesel infrastructure

In September 2012, the EPA announced that it had increased
the biodiesel volume requirements under the RFS by 28%, from 1
B gal for 2012 to 1.28 B gal for 2013. According to an NBB news
release, while this represents a modest increase over the
industrys 2011 record production of 1.1 B gal, it puts
the industry on course for steady, sustainable growth in the
coming years.

New biodiesel facilities, particularly in the US
Midwest, are unlikely, as the majority of the existing plants
are located in this region to take advantage of the domestic
soybean crop. However, several companies have constructed new
plants on both the East Coast and West Coast to serve local
markets. The infrastructure required to store and distribute
biodiesel still has growth potential and ARC Advisory Group has
observed related activities in 2012. Many appear to be based on
the anticipation that the government would sustain or increase
the biodiesel mandates in the coming year, as well as
individual state mandates for greater biofuel use. While these projects are small scale, many are
significant.

In March 2012, Motiva announced a project to convert existing storage
at its Sewaren Terminal in New Jersey to both ULSD and B100
biodiesel storage and to improve associated rail logistics.
These investments will enable the terminal to readily supply
multiple blends of biodiesel (including ULSD/B100 blends) for
shipment to New York State assisting in a new mandate required
use of ultra-low-sulfur heating oil.

In July 2012, New York-based Ultra Green Energy Services
announced the opening of biodiesel operations at the Brookhaven
Rail Terminal in New York. This project was also stimulated by the
New York State low-sulfur heating oil mandate.

In September 2012, Magellan Midstream Partners celebrated
the opening of a new $2.5 million biodiesel storage and loading
facility at the companys large Clear Lake Terminal in Des
Moines, Iowa. This new facility will help Iowas 14
biodiesel production refineries supply truck stops and other
fuel retailers throughout the Midwest. HP

The authorPaul Miller is a senior
editor/analyst at ARC Advisory Group and has 25 years
of experience in the industrial automation industry.
He has published numerous articles in industry trade
publications. Mr. Miller follows both the terminal
automation and water/wastewater sectors for ARC.

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